In his Autumn Statement 2016 the chancellor announced the removal of tax reliefs for individuals entering into Employee Shareholder Status (ESS) agreements on or after 1 December 2016.
This follows Government concerns that ESS share schemes are being used mainly for tax planning rather than its intended purpose of developing a more flexible workforce.
Legislation will be introduced in Finance Bill 2017 to remove:
- The income tax relief on the first £2,000 of ESS shares.
- The CGT exemption on ESS shares.
- Provisions that prevent an employee being taxed on a distribution when a company buys back ESS shares.
The changes will only apply to employees entering into an ESS agreement on or after 1 December 2016.
The following are not affected:
- Shares received under agreements made before 1 December 2016.
- Corporation tax reliefs for the employer company.
- The tax free status of independent legal advice received by an employee.
The proposed changes remove the majority of the tax benefits associated with ESS, but don’t close the scheme down completely. The Government has however said that it intends to legislation to close ESS to new entrants as soon as possible.
Our freeview guide: Employee Shareholder owner status
Our subscriber guide: Employee Shareholder Status - tax & planning